TWO IMPORTANT WORDS IN REAL ESTATE: LEVERAGE AND LEVERAGE

There are a few good reasons why a smaller down payment is better than a larger one.

1)  The secret to success in real estate (besides location) is leverage.  It's in your best interest to leverage as much of a loan amount as possible, so you're effectively using someone else's money.  While the lender's money is tied up on your loan, you can use the money you would've otherwise spent on a down payment to some other good use (to buy stock, or purchase another piece of real estate, or to buy CD's, or whatever). 

2)  The larger the loan amount, the less your downpayment, and the newer the loan, the greater is the amount you have to deduct on your income taxes.  The greater your deductions, the less income tax you pay, the more money you put in your pocket, or as is usually the case, the greater the size of your income tax refund.

3)  In the case of FHA financing, it's just as easy to qualify for a loan with 3% down as it is with more down, assuming you can make the payments in both instances.  Why knock yourself out saving $120,000 (or 20%) when you don't have to?  It's a lot of work, a lot of time, and a great deal of sacrifice to save that kind of money.  Heck, your kids will probably be in college by the time you accomplish that.